Sydney

Industrial investment market characterised by long list of purchasers and short list of vendors

2013-08-07T05:00:00Z

Major industrial sales dominated by residential site sales demonstrates lack of prime grade investment opportunities available on market

AUSTRALIA, 7 AUGUST 2013 – The strong investment market is causing yields to tighten across both prime and secondary grade industrial assets, according to the latest research from Jones Lang LaSalle.

The balanced fundamentals of the industrial sector and key attributes of long lease terms and fixed rental escalations are encouraging growing investment from domestic and offshore groups looking for solid income returns and the prospect of capital growth from further yield compression.

Australian Head of Industrial, Michael Fenton said, “The most apparent trend in the market at the moment is the unsatisfied capital looking to invest in the industrial sector. Last quarter, the market gave us a reminder of the shortage of prime grade investment stock available for sale.”

“Despite overall investment volume remaining on trend with recent years, stripping out the non-conforming sales such as residential development sites and the related-party transactions, there were very few individual prime grade assets transacted on the open market,” said Mr Fenton.

There was approximately AUD 1.02 billion of major assets sold during the first half of 2013. However, less than half of this volume (AUD 489 million) can be characterised as ‘opportunities’. Almost 30% is accounted for by large residential re-development opportunities. A further AUD 78 million was related party transactions and AUD 160 million was assets smaller than AUD 10.0 million in price.

The largest industrial investment property sold in Q2 2013 was 02 9220 8436in Sydney’s Outer South West, which was sold by private company Maremma Pty Ltd for AUD 34.35 million to the unlisted DEXUS Wholesale Property Fund.

Mr Fenton said, “There is a large wall of capital looking to get set in the industrial sector this year. Key A-REITs, wholesale funds and superannuation funds are driving most recent purchases. Syndicators have emerged as prominent buyers of sub-$15 million properties with higher yields. This is being supplemented by offshore capital either in a direct or indirect capacity looking for assets with core characteristics.

“Furthermore, a turnaround in strategy from Mirvac and Stockland is likely to see further capital chasing Australian industrial opportunities towards the end of this year. Altogether, these factors point to further yield tightening across most markets as purchasers outnumber sellers in a sector seeing below average levels of new asset creation,” concluded Mr Fenton.

Key highlights of the second quarter research show:

• Gross occupier take-up in Q2/2013 was 395,000 sqm; • Gross occupier take-up for the first half of 2013 was 899,000 sqm, slightly below average, weighed down by lower activity in Melbourne in the second quarter;• New supply of 437,000 sqm of projects was completed in the first half of 2013. A further 768,000 sqm of projects are under construction – meaning supply in 2013 will be some 26% below the 10 year average of 1.64 million sqm per annum.